The unprecedented liquidity that has entered the venture market in the past year has spurred several trends that require VCs to adapt to a more competitive environment where startup founders have far more leverage than they did in the past.
Structurally speaking, it is limited. While some entrepreneurs may pursue deals that they would not have done otherwise, the capital available to venture funds has outpaced the demand.
This is a unique environment for VCs to compete to be in deals with startup companies. They are also jockeying to earn spots at cap tables and moving quicker to close deals.
Early-stage VCs who are the best invest their time in finding founders that they trust and need their knowledge. They’ll work with them over the long term.
In an attempt to increase exits and return on investments, aggressive pursuits are made by new entrants in the VC market such as Tiger Global.
Many founders now have the chance to attract more investors and raise larger rounds of capital. This is evident in the continuous drumbeat of funding news, as well as in the 250 unicorns, and record investment of $288 billion in startups during the first half.
What can VCs do to be more competitive and adapt?
Some people believe that moving quicker to close deals is the best option. This can be achieved by utilizing technologies such as AI and doing additional due diligence before meeting with startups. Others may find it more difficult to make larger investments or accept smaller stakes in startup companies than usual.
Publiated at Thu, 12 August 2021 @ 18:46.24 (+0000).